'Most of the city is evacuating': Gridlock on Alberta highway after evacuation order in Fort McMurray
Four Fort McMurray neighbourhoods were ordered to evacuate on Tuesday as a wildfire gets closer to the city.
There appears to be a shift in the real estate landscape and you have to wonder: is there hope on the horizon for qualified first-time homebuyers?
This shift has only started to happen during the past couple of weeks. Our son, Dave, who went to see a home just outside of Toronto, had 25 registered offers and ultimately went $660,000 above the listing price five weeks ago. Recently, a home similar to that one, in the same area with the same price tag today, has had zero registered offers.
What has changed?
Interest rates have headed higher and in all likelihood, the Bank of Canada isn't done yet. There are fewer buyers willing to dip their toe into this market. Prices have yet to come down and costs have risen. Surely this is a recipe to cool things off but it hasn’t happened yet.
WILL THE MARKET COOL?
Housing prices in Canada are still incredibly high and here is why -- we are still dealing with a supply shortage in desirable locations, higher immigration levels have put pressure on demand, along with the strong desire for urban lifestyle living especially in Toronto, Vancouver and Montreal. The high concentration of buyers has driven demand and the knock-on effect has led to higher prices. Bidding wars have become the norm and successful bidders often found themselves stretched to the limits.
What was once considered a reasonable debt/service ratio where your monthly household income that covers your housing costs couldn't exceed 39 per cent and where the percentage of your monthly household income that covers your housing costs and any other debts couldn’t exceed 44 per cent simply doesn’t cut it anymore. Lenders have been stretching the boundary on approval limits to get the deal done.
Now don’t get me wrong, it is still a challenge to find the right home, in the right location for the right price. Prices are still so high in Canada as there are simply too many people bidding on too few homes, in turn driving prices higher. The result is that the first-time buyer is getting squeezed out. The wealthy seem to have had the upper hand in bidding wars where lower rates and larger deposits have tilted the odds in favour of those with financial flexibility.
While the challenge in the real estate market may appear obvious – a market with supply and demand imbalances – it is too simplistic a statement without including the reasons for the imbalances.
During the pandemic, many came to realize their desire for more living space and shorter commutes, and found a better appreciation for how they wanted to work and where they wanted to live. The desire to move quickly became supported by an incredibly low interest rate environment that was designed to intentionally help stimulate demand and offer up certainty for potential home buyers. The policy became the lifeline for those looking to relocate or cash out of their homes. In fact, real estate became the pillar of strength for our struggling Canadian economy. The desired outcome was achieved.
That was then and this is now.
WILL IT BECOME A BUYERS' MARKET?
The once-motivated seller who may have listed their home to simply cash in, now has to think about a realistic listing price in a rising interest rate environment if they hope to stimulate interest. That could be a game-changer for new home buyers who can handle higher rates.
Stay tuned, there are still people who want to sell and buyers who can handle higher rates. But there are fewer of them, so we will all be watching closely to see if the dynamics shift to a buyers' market from the sellers' market of the past few years.
However, a word of caution to first-time buyers: just because you can doesn’t mean you should. Homeownership is still very expensive. The impact to your lifestyle, when mortgaged to the hilt, is significant. Gone will be the disposable income you once enjoyed that allowed you to dine out, travel and frequent live entertainment. The economy is bouncing back so recognize that the fear of missing out on your dream home could soon be replaced with the fear of missing out on the lifestyle you once enjoyed.
Before you leap into a more expensive home than you can comfortably afford – just because you can afford higher rates – I think it still begs the question: should you?
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